Bitcoin, ETH Locked In DeFi Hits $14 Billion…but There’s a Catch

In letter

  • The total value locked in DeFi marks new highs thanks to rising prices for crypto assets.
  • However, since October the number of ETH banned in DeFi protocols has decreased by 25%.
  • Calls to support the launch of Ethereum 2.0 could withdraw deposits from DeFi.

Total locked DeFi has reached new heights, but soaring crypto prices have masked a surprising new trend – the number of ETH banned in DeFi protocols is actually falling.

Total Value Locked (TVL) set in DeFi protocols has risen to more than $ 14 billion since November 20, and hit a new all-time high of $ 14.39 billion on November 21. The rising price of Bitcoin and Ethereum was the source of continued TVL growth, with BTC prices rising 34% and ETH 54% since early November.

In the same period, however, more than two million ETH left the DeFi ecosystem and the number of Bitcoin remained largely constant, according to data DeFi data aggregator DeFi Pulse.

DeFi, short for decentralized finance, refers to an emerging group of blockchain-based applications that provide financial services such as loans, interest on deposits and asset swaps. In contrast to conventional banks and central stock exchanges, DeFi applications carry out financial transactions automatically smart contracts.

The total locked value has become a popular metric for measuring the broader DeFi ecosystem, as DeFi applications rely on customer deposits from cryptocurrencies like Bitcoin and Ethereum to function. Loans are given by value locked in DeFi apps and by decentralized exchanges like Uniswap Use a locked value to facilitate trading between different crypto tokens.

ETH, which was tied to DeFi applications, hit a high of 9.25 million on Oct. 20 and has since fallen more than 25%, despite the TVL increasing 23% due to rising ETH prices. The locked bitcoin stayed essentially the same over the same period, increasing from 164,500 on October 20 to 168,500, which is a TVL difference of about 0.5%.

What is the reason why ETH is leaving DeFi? He could be a culprit upcoming launch of Ethereum 2.0, a new upgrade for Ethereum that offers interesting rewards for the staked ETH and finally a reconfiguration of the entire Ethereum blockchain. For Eth2 to start, prior to a scheduled December 1st launch date, around 525,000 ETH must be sent to a deposit address, of which more than 402,000 – around 75% – contributed. This major Ethereum milestone could be getting ETH out of DeFi contracts.

DeFi users might also feel more cautious as repeated hacks continue to plague many emerging financial protocols, with DeFi projects earning interest from acropolis to DeFi value and even yield-optimizing Pickle Finance Attacked for millions in November alone. The inability of many DeFi protocols to prevent these costly exploits could cool the entire ecosystem, especially since the Eth2 contract is a viable alternative for ETH holders.